ITO - 27 (1)(4), MUMBAI vs. DHARMESH BABULAL PATEL, MUMBAI

This appeal has been filed by the revenue against the order dated 21.06.2018 passed by the Commissioner of Income Tax (Appeals)-24 (for short ‘the CIT(A), Mumbai, for the assessment year 2009-10, whereby the Ld. CIT(A) has partly allowed the appeal filed by the assessee against the assessment order passed u/s 144 r.w.s 147 of the Income Tax Act, 1961 (for short the ‘Act’).

The assessee filed its return of income for the assessment year under consideration declaring nil income. Since, the AO received information from DGIT (Inv.) that the assessee during the previous year had obtained bogus bills from three hawala dealers amounting to Rs. 61,269/-,without actual purchasing goods. On the basis of the said information, the AO reopened the assessment after issuing notice u/s 148 of the Act to the assessee after recording the reasons for reopening of the return. Accordingly, the AO issued notice u/s 142 (1) and 143 (2) of the Act. However, the assessee did not respond to the said notices. The AO again issued letter to the assessee to Assessment Year: 2009-10 furnish the details regarding the purchases made from hawala dealers. Again, the assessee did not respond to the said letter. Accordingly, the AO completed the assessment u/s 144 read with 147 of the Act and after making interalia the amount of bogus purchases to the income of the assessee determined the total income at Rs. 5,77,550/-. The assessee challenged the assessment order before the CIT(A). The Ld. CIT(A) after hearing the assessee restricted the addition to 12.5% . Against the said order, the revenue is in appeal before the Tribunal. 3. The revenue has challenged the impugned order passed by the Ld. CIT (A) on the following effective grounds:- “1. On the facts and circumstances of the case and in law, the Ld. CIT (A) erred in deleting the addition of Rs. 53,611/- made by the Assessing Officer on account of bogus purchases, without appreciating the fact that the assesse had failed to produce bills, vouchers and other documentary evidences in support of his claim and without considering the latest Apex Court decision in the case of N K Protein Ltd. wherein it is held that once it is proved that the purchases are bogus then addition should be made on entire purchases and not on profit element embedded in such purchases. 2. On the facts and circumstances of the case, the Ld. CIT (A) erred in estimating the profit from Hawala purchases by disallowing only Rs. 7,658/-, being 12.5% of the bogus purchases as even the basic onus of producing transportation documents, inward register etc. were not fulfilled by the assesse.”

This case was fixed for hearing on 26.09.2019. However, on the said date, when the case was called out for hearing, none appeared on behalf of the assessee. From the record, we observed that the assessee had not appeared despite service of notice. The notice issued on 27.08.2019 has not received back un-served. Hence, we decided to dispose of the appeal on the basis of material on record after hearing the Departmental Representative (DR).

The Ld. DR submitted before us that since the assessee had failed to discharge the onus of proving genuineness of the transaction of purchase by Assessment Year: 2009-10 adducing cogent evidence, the Ld. CIT(A) ought to have confirmed the addition made by the AO in accordance with the law laid down by the Hon’ble Gujarat High Court in the case of N.K. Proteins Ltd. [1996] 58 ITD 428. The Ld. DR further submitted that Since the AO has made the addition considering the profit embedded in the questioned transaction, the order of the Ld. CIT(A) is erroneous and the same is liable to set aside. 6. We have carefully gone through the relevant record including the cases relied upon by the authorities below. We are convinced from the material on record that the assessee has failed to establish the genuineness of the purchases in question by adducing cogent and convincing evidence. The notices issued by the AO were received back un-served. The assessee also failed to produce the parties before the AO for verification. Hence, in our considered view, the AO has rightly concluded that the assessee has not made the questioned purchases from the parties mentioned in the books of account of the assessee. However, the AO has not rejected the sale of the goods so purchased. The above-mentioned facts give rise to the conclusion that the assessee had purchased the goods in question from grey market and evaded the tax applicable during the relevant period. Under these circumstances, the AO had no option but to make an addition on estimation basis considering the applicable rate of VAT or other taxes and the profit embedded in the said transaction. In the first appeal the Ld. CIT(A) has restricted the addition to 12.5%, holding that the estimate reached at by the AO is on much higher side. The operative part of the decision of the Ld. CIT (A) reads as under:- “I am of the opinion that the facts and circumstances of the present case are more akin to the cases decided by the Hon’ble High Court in the case of Smit P seth (supra). Therefore, I hereby confirm the disallowance to the extent 12.5% amounting to Rs. 7,658/- of the so called bogus purchases made by the Ld. AO.”